Romancing the Home

Luxury markets are defined as the top 10% of homes in any given market, measured by price, but never less than $500,000. 

There’s currently a 30-month inventory of homes priced over $1,000,000 in the Salt Lake City area. Total transactions are off by 25% from a year ago. This is shaping up to be one of the weakest categories of real estate in 2010.

This year at the NAR Convention, I attended two great courses led by Laurie Moore, Director of the Institute of Luxury Home Marketing.  The overriding theme:  Now, more than ever, luxury sellers are in need of agents that are entrepreneurial problems solvers and great marketers. 

Luxury Market Trends:

• Mortgage defaults on Jumbo Loans (loans over $750,000) are now twice the rate of Conventional Loans.  This means a growing inventory of short sales and foreclosures of luxury properties.
• Attitudes and motivations are shifting away from conspicuous consumption, to comfortable and peaceful luxury.
• Design esthetics are shifting as younger buyers enter the category.  A low carbon foot-print is growing in importance.
• All-cash bargain hunters are on the move.

My favorite take-a-way from the panel of experts is a strategy called Romancing the Home.  It’s based on the premise that every home has a story to tell that is unique.  The best marketers are telling stories that are compelling, visual and emotional.  The more detail, the better.

The Wall Street Journal reported on August 2, 2009 that high-end homes, generally defined as those priced above $750,000 - “remain mired in a deep slump and price declines are expected to accelerate”.

Big and Ugly Banked Owned, Park City, UTThe stimulus programs that created a buyer frenzy at the low-end of the market don’t exist for affluent buyers. For some high-end real estate listings in Salt Lake City and Park City, there could be some serious trouble ahead.

While some affluent buyers may not need a mortgage, those who do are facing higher rates and tighter lending standards. Most banks that are offering jumbo mortgages (mortgages above the FHA maximum of $729,750) generally require a minimum down payment of 20% or more and are offering interest rates that are about 1% higher than the average 30-year mortgage.

Some experts are predicting that a second round of housing problems could come down squarely on the luxury housing market. Defaults on jumbo mortgages have jumped from 4.5% in November to 7.4% in May according to First American CoreLogic. Jumbo defaults are now considered one of the fastest growing default-categories among prime mortgages. High-end inventories are swelling across the country and would-be buyers appear to be in a conservation mode. A quick recovery is not in the cards.

A recent survey by the NAR has discovered that 75% of agents report that their clients are buying smaller houses due to tighter credit requirements. There also appears to be a mounting social question as to how much home one should own. Quality and luxury are still hot-buttons, but BIG is becoming a bit of a burden for some home sellers.

Sure, you will find doubters among the Realtors and home sellers. Leslie Appleton-Young, the chief economist for the California Association of Realtors asked an audience of real-estate agents in 2007 “When is the 30% decline in Marin County’s market going to happen? Not in my lifetime.” Since then, home prices have declined by 21% from their peak, according to Zillow.com. And yes, Mrs. Appleton-Young still walks among us.